KEY INVESTMENT HIGHLIGHTS

• Normalised earnings plunged to RM5.2m (-91.3%yoy) in 1QFY21 which was below our and consensus expectation

• This was mainly due to the movement control order (MCO) putting a halt on construction and property operations

• Expecting resumption of construction and business activities from 2QFY21 onwards

• Healthy order book of RM5.5b which translates into earnings visibility for the next four to five years

• Maintain BUY with a revised target price at RM1.50

Foresee activities to pick up from 2QFY21 onwards. IJM Corporation Berhad (IJMC)’s 1QFY21 normalised earnings fell by - 91.3%yoy to RM5.2m, primarily due to the disruption brought about by the movement control order (MCO) on construction activities which led to lower-than-expected progress billings and lower property sales. This came in below our and consensus’s expectation, accounting for 2.1% and 0.1% of the full year estimates respectively. Nonetheless, we expect IJMC’s construction and business activities to regain pace from 2QFY21 onwards as work site operations resumed promptly.

Outstanding order book remains sizeable to support earnings momentum. The group’s construction division posted a decline of revenue to RM320.8m (-44.8%yoy) on lower progress billings. Consequently, this led to a lower profit before tax margin to 5.1% (- 1.9ppts yoy). Nonetheless, we are of the view that the current strong order book of the group which stood at RM5.5b as at 30 June 2020 is expected to provide earnings momentum for the group moving forward. This is mainly due to the prompt resumption of business operations and implementation of catch-up strategies to ramp up progress from 2QFY21 onwards. Note that the current order book will provide the group with an earnings visibility for the next four to five years.

Property development segment to recover. IJMC’s property development revenue fell -69.7%yoy to RM151.2m in 1QFY21, primarily as a result of lower construction activities and lower sales during MCO. Thus, the profit before tax of this division went into red of -RM10.4m as compared RM45.9m in previous corresponding period. As at 1QFY21, the group achieved decent sales of RM320.0m from the central and international region. Moving forward, we expect the property segment of the group to gradually recover on better sales ahead during the Home Ownership Campaign as announced by the Malaysian Government and recovery in demand for its properties in abroad

Source: MIDF Research - 27 Aug 2020